Friday, November 20, 2009

FINDING THE RIGHT SUCCESSOR TO PASS-ON THE CEO’S BATON IS ONE OF THE MOST CRITICAL STRATEGIC DECISIONS THAT A COMPANY SHOULD TAKE... MUCH BEFORE THE CEO IS ACTUALLY READY TO ‘PASS IT ON’.

He’s finally back in business (thank God for that!). Fortune magazine has named him ‘CEO of the Decade’ this month. He is the perfect choice and there can be no one better, for this man has single handedly redefined mobile communication (with the iPhone), made the geeky PC hip-n-happening (with the Mac- Book) and brought back Apple from the brink. Steve Jobs is a man whose products inspire a religious devotion in users – and he is worshipped by many around the world. But this is where the problem lies. Early this year when Steve Jobs took a leave of absence from his company to get a liver transplant, Apple’s stock slid to an all time low. It’s said that when Jobs sneezes, Apple catches a cold. If a company is all about a great personality and a not a great product there’s going to be a big problem of survival

Till recently, Apple was synonymous with Jobs. Not so much now and thankfully so. Without Jobs at the helm, Apple surprised Wall Street with its Q2 profits which showed the world that – yes Steve had shown the way, but the company was in safe hands without him too (under Tim Cook). Steve was back in September and got a standing ovation from the audience, not so much for the new iTunes software and new line of iPod Nano music player with video cameras, but for being the greatest icon of corporate world. Yes, the wizard is positively back but has ensured that Apple is definitely not just about its founder’s charisma, but about computers and others things – in which they are the best. Tim Cook seems to be the right choice for successor and Apple is apparently in safe hands.

When the man at the helm of affairs is a living legend and one of the richest persons in the world, finding the right successor gets a bit difficult. However, when you are a smart investor like Warren Buffett, you don’t just have one but four potential successors to choose from. For more than four decades, the man has been nurturing his firm Berkshire Hathaway, making it America’s sixth-largest company by market value. Choosing the next Buffett is as important for Berkshire as it is for America. Buffett at 77 is aware that the one question hanging on everyone’s mind is – who’s next? He knows and understands the sentiments and jokes that he has built Berkshire so that it could be run by a cardboard cutout or the bust of Benjamin Franklin. When a company is performing well, who its successor is going to be, becomes all the more important. And with Warren’s good planning, everyone’s optimistic that whoever the successor – Ajit Jain, David Skoll, Joseph Brandon or Tony Nicely – America’s most famous investor, the so-called Oracle of Omaha, will find the right guy as his successor.

GREAT IS NOT ENOUGHWhen Jack Welch became General Electric’s CEO in 1981, the company was worth $14 billion and when he retired 20 year later, GE’s value had touched $500 billion. This was fabulous, but true success lies in the ultimate test: once the leader is gone, does the company continue to flourish? The most important job a CEO does is not just keep the balance sheets looking good, but finding the next man who can take the company forward. Jack Welch says, the most important business decision he took was selecting his successor. At GE, CEOs have the ‘airplane’ question that help them identify the next man. Imagine you are flying in one of the company planes and the plane crashes. Who would be the next chairman of GE? This simple question helped GE identify Jeff Immelt as successor for its top job. As Jim Collins discovered while writing his book ‘Good to Great’ – it’s getting the right people in the right job which is more important than strategy. Getting the right person for the most important post in the organization (that of the CEO) seems to be a leader’s most important task.

Back in the 1970s, American car giant Chrysler was losing money and faced bankruptcy. Its new CEO Lee Iacocca convinced the government to provide a $1.5 billion bail out loan. Soon this maverick turned around the company and made it profitable. Not just that, he returned the government loan seven years early. This grand-old-dad of business became America’s favourite straight talking leadership guru. His famous slogan “If you can find a better car, buy it” became a super hit. This business rock star retired from Chrysler in 1993. Today, Chrysler is bankrupt again. In May, President Obama announced a plan for Chrysler to file for bankruptcy - this time there was no knight in shining armour to save the company. Iacocca did a great job but sadly it was not enough to save the company.

A wrong successor can ruin even a great empire. History is proof that incapable kings and emperors have ruined everything their predecessors built. The extremely capable and intelligent Akbar, the greatest of Mughal emperors, was able to conquer and control all of northern and parts of central India. When he died, the empire extended from Afghanistan to the Bay of Bengal and southward to the Northern Deccan. But just making a grand empire was not enough. A series of weak successors and everything Akbar created was ruined when Aurangzeb took over the throne. Sometimes just keeping it all in the family may not prove to be a good idea.

HOMEGROWN OR NOT?Who to choose as your successor may prove to be a tough question to answer. Succession planning needs to be done intelligently. It’s a slow process and a difficult one too. Nine years before his anticipated retirement, Welch said, “Choosing my successor is the most important decision I’ll make from now on. It occupies considerable amount of thought almost every day.” That’s what we call ‘visionary leaders’. And it’s these leaders who choose their successor from within the organization. ‘Home grown CEOs’ is the key word to successful succession planning. In the 1900s, Colgate and P&G were at par with each other, but by the 1940’s, Colgate had fallen to less than half the size of P&G. The reason? Poor succession planning. If you need to depend on some outsider to take your company forward it may be a wrong choice. All great CEOs have started their careers within the organization – no wonder they understand it the best. Jack Welch joined GE in 1960 as a junior engineer; Mike Eskew, the erstwhile CEO of UPS, the world’s largest package delivery company, started his career in 1972 in UPS as an industrial engineering manager. Under him, UPS saw unprecedented growth with revenues growing by nearly 57%. Not just that, its international package revenues more than doubled and its supply chain and freight revenues quadrupled. Contrast this to Carly Fiorina who joined Hewlett-Packard in 1999 as its CEO, becoming the first woman to lead a Fortune 20 company. Her decision to merge Compaq with HP led to her downfall and in 2005 she was forced out of HP. Dynamic, articulate and powerful, Fiorina had seemed the ideal choice. The media loved her and she adorned the covers of most business magazines. Yet, these may not be the right criteria for choosing a true leader. As Ram Charan states in his book ‘Execution’, most people assume that a great leader is one with vision, is articulate and can inspire. They forget the most important question: How good is this person at getting things done in the right manner? Do they set adrenaline pumping goals and energize the whole team to achieve these goals? Do others enjoy working with him? If the answer to the above questions is ‘Yes’ then you have found your man. Most of the time he/ she will be a person who started his career in your organization.

CREATING THE CULTUREA successful business is one that not only has great management and an excellent business model, but also a great culture to hold the two together. To keep the culture one needs highly able managers who understand the company values and its business models. At Berkshire Hathaway, each of Buffett’s hand-picked successors are trained to run the business just the way he would. Many companies fail to do this and then need to rush back to their founders to be able to survive. Howard Schultz was brought back to help Starbucks survive the slowdown. Toyota is looking up to Akio Toyoda, the 53 year old grandson of the company’s founder, to help the company recover. For the first time in 14 years, Toyota is turning to its roots for leadership to help it tackle its worst crisis. Our country looked up to Sonia Gandhi to help the country and provide it the right leadership. Let that not happen to you.

Some of the world’s most admired companies are now being headed by new CEOs or are on the look out for new leaders. Ratan Tata too is looking for his successor and he has two years to find the right man. The fate of India’s most respected business will rest on those hands. P&G is replacing its longtime CEO A.G.Laffley with the 29-year-old company veteran Robert Mcdonald; Wal mart has a new CEO Mike Duke who replaced Lee Scott – a man who spent 30 years in the company. Next year, Douglas R. Oberhelman would look after Caterpillar and Bank of America too will have a new head in place. All these companies feature in Fortune’s list of most admired companies. Would they continue to remain so is what we need to see. If the successors are chosen carefully, these companies would continue to prosper. So if you want to build a great company, invest in a great successor. Just doing a great job is not enough. You need to ask yourself daily: Who’s next?

About Me

Rajita Chaudhuri is the Dean , Center for Higher Education @ IIPM. She is the Consulting Editor of '4Ps,Business&Marketing' magazine and 'MYOD'. She is the winner of the "Best Faculty in Marketing".Her passion is teaching.

Prof. Rajita Chaudhuri speaking at 'Thorns to Competition' book launch

IIPM 4Ps Bschool Quiz with SRK

Prof. Rajita Chaudhuri's Executive Communication Class - April 2011

Prof. Rajita's Class on Team Building

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